December 11, 2012
- Fewer sales, higher taxes: the cloud over U.S. small business
- Patrick Cox on a hostile environment for startups… why he’s still optimistic on the companies in his space anyway… and a way to play that optimism in the next 48 hours
- “Stealth default” on Social Security, first floated in mid-2010, appears close to a done deal
- Opportunity from crisis: one line on a chart that sums up Chris Mayer’s approach to investing
- Secret Service strong-arms eBay sellers… calculating the food stamp program’s overhead… final access to Rancho Santana Sessions recordings… and more!
There’s little doubt: Small-business owners hate the outcome of the election.
The National Federation of Independent Business is out this morning with its monthly Small Business Optimism Index. At 87.5, the number is the lowest it’s been since June 2009 — as coincidence would have it, the end of the “official” recession.
Can’t blame it on Hurricane Sandy: Business owners in states untouched by the storm are no less gloomy than in those that were damaged.
There’s been a shift in what we consider the most intriguing part of the survey, asking what small-business owners think is the “single most important problem” they face. For months, there’s been a three-way tie between “poor sales,” “taxes” and “government regulations and red tape.”
In the new survey, regulations take a back seat to taxes and poor sales — both at 23%.
While the president says higher tax rates on families making $250,000 or higher will affect only 3% of small businesses, the NFIB reckons it will be closer to 15%.
“This administration,” our biotech maven Patrick Cox chimes in, “has so far shown little interest in doing anything that would encourage investors to fund the startups that create 100% of all net new jobs.”
And yet… Patrick says you buy into doom and gloom at your peril. He calls it a trap.
“If you fall for that trap, you’re going to miss out on the upside of the recovery, which will be the greatest in our generation. If you think that this time, for the first time in modern history, America won’t recover, explain one thing to me: Michigan.”
This morning, the Michigan House voted 58-51 to approve “right to work” legislation. It bans workplace rules that make union membership a condition of employment for government workers.
A second bill applying to the private sector will likely pass by the time you read this. Gov. Rick Snyder says he’ll sign both bills. Michigan would become the 24th right-to-work state.
Passage of the bill, says Patrick, “is a harbinger of what will happen to California, New York and Illinois at some point. Remember, swing voters don’t vote on ideas. They vote based on the pain caused by ideas. It’s operant conditioning.
“Seriously, Michigan’s turning, even after the auto bailouts, is evidence that there is a maximum pain threshold, and collectivism brings the pain.”
Patrick is already looking ahead to the opportunities that will unfold during the “greatest recovery in our generation.” One of them will open up barely 48 hours from now… while the economy’s still in the tank.
“This technology would be a winner in any circumstances,” Patrick explains, “but the increase in counterfeiting and crime that always accompanies economic downturns makes it particularly compelling and urgent.”
Here’s the story: An obscure arm of the Pentagon known as the Defense Logistics Agency recently mandated that all supplies furnished to the Pentagon use a single type of anti-counterfeiting technology.
Only one company produces this technology.
“Said a different way,” Patrick goes on, “this tiny firm with just 21 employees has been granted a monopoly by the United States government.”
The company is planning a significant announcement on Thursday… one that Patrick believes will produce an immediate and substantial gain in the share price… on the way toward the sort of “life-changing” gains that he aims to deliver for his readers.
Shares can be had for only 19 cents each, so you don’t need much money to take a flyer on this little firm. In fact, we’ve never prepared a research report on a company with a share price this low.
Patrick can tell the rest of the story much better than we can. But as you’ve already figured out, the time to act is short: Click here to decide whether this opportunity is for you.
Tech stocks are leading the way as all the major U.S. indexes are rallying this morning. The Dow has powered past 13,200, the Nasdaq past 3,000.
The Federal Reserve has begun two days of meetings. At 12:30 p.m. EST tomorrow, smoke will emerge from the top of the Marriner Eccles Building and we’ll know whether the monetary conclave has chosen to expand the current round of “quantitative easing.”
The betting on the Street is they will. “Markets expect the Fed to replace its expiring Operation Twist purchases with unbridled, unsterilized purchases of U.S. Treasuries,” says our macro strategist Dan Amoss.
Dan is agnostic on whether traders will “sell the news” tomorrow… but on a longer time horizon, he’s quite certain of the effect on markets: “Sooner or later, circumstances will force investors to think through the implications of central banks printing money to finance government deficits. They’ll conclude that profit margins at most companies have peaked amid rising production costs and they’ll rush to bid up precious metals and other inflation hedges.”
In the meantime, gold is off slightly at $1,710. Silver is down nearly 1% and is losing its grip on $33. The weakness comes even as the greenback is weakening; the dollar index sits at 80 on the nose.
Crude is flat at $85.68.
It’s called “chained CPI” — another way to jimmy the consumer price index for what economists call the “substitution effect.”
Addison explained it this way last July: The wonks already assume that if steak gets too expensive and you substitute hamburger instead, your cost of beef hasn’t really gone up. Under chained CPI, if you give up hamburger and substitute beans, your cost of protein hasn’t really gone up.
“Putting a chain on CPI,” writes Derek Thompson at The Atlantic, “has attracted support from Republicans who’d like to cut Social Security, Democrats who want to appear receptive to entitlement fixes and moderates everywhere who argue that our current inflation measure is too generous.”
Not only would chained CPI lower future Social Security payments, it would also have the effect of pushing people into higher tax brackets sooner.
Back when the Simpson-Bowles Commission first floated this notion in mid-2010, it estimated — here we go again with Washington’s fetish for 10-year projections — chained CPI would generate $300 billion in additional revenue for Uncle Sam over the following decade.
Chained CPI shows up in House Speaker John Boehner’s latest budget proposal… and the White House has been open to the idea from the get-go. You’re on notice…
“I got in around midnight from Nicaragua,” reads a familiar admission from our globe-trotter Chris Mayer.
“I was attending the second Rancho Santana Sessions,” Chris writes, “hosted by my publisher at that sunny locale, to tackle whatever issues are on the minds of the attendees. We had a good group of people and there was a lot of discussion, some of it running happily into the wee hours at La Finca y El Mar, the clubhouse by the sea.
“Though we did not plan it, both Joel Bowman (the co-editor of The Daily Reckoning) and I gave talks peppered with cheerful conclusions. Joel came down optimistically on the political side of things (‘the state is doomed’). And I came down optimistically on the side of investing in certain opportunities in today’s stock market.”
“The more I think about it, though, the less I like the optimist-pessimist continuum,” Chris goes on.
“What I am really advocating is a rationalist approach.
“People get lost in big-picture abstractions when it comes to investing. It is easy to look around and shrink up like a frightened turtle at, say, the towering debt the U.S. government owes. There is always plenty to worry about.”
Although Chris takes the pits into account, “I also take a long view of history,” he points out. “We have been through worse. In every crisis, there are opportunities.”
“More simplistically, I hold to the basic idea that markets go in cycles.
“So in my Rancho Santana Session, I had this one simple chart that sums up how I think about investing:
Caption: Investing 101: Buy when down, hold for rebound“In the real world, of course, no market works just so neatly,” Chris admits. “But if you look back over time, you find many such basic outlines.”
Chris’ presentation at Rancho Santana cites a few industries at the turn of an up cycle. He also reveals a couple of his absolute favorite plays to ride these skyward sine waves.
[Ed. Note: Haven't gotten your Rancho Santana Sessions Two HD videos yet? Time's running out... we're pulling them off the shelf at midnight tonight. Don't miss out on the HD videos of two days, seven speakers and a slew of investment insights, ideas and plays... just in time to prepare for the new year. Click here to get the full rundown... ]
And now a sorry postscript to the strange tale of the Liberty Dollar.
There’s been little to say about the silver coin designed by Bernard von NotHaus, not since he was convicted in March 2011 of “making coins resembling and similar to United States coins; of issuing, passing, selling and possessing Liberty Dollar coins; of issuing and passing Liberty Dollar coins intended for use as current money; and of conspiracy against the United States.”
The U.S. attorney who prosecuted the case went so far as to declare, “Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism.”
Coins of the terrorist realm, as far as the feds are concerned…Von NotHaus still awaits sentencing; he faces more than 20 years. Meanwhile, the Secret Service has pressured the auction site eBay to pull down all Liberty Dollar listings.
Sellers received a notice informing them, “We appreciate that you chose to list this coin on our site and understand there was no ill intent on your part. Your listing fees have been credited to your account.”
One of the sellers, Dave Gillie, tells Coin World that eBay canceled his listings on Nov. 29. He adds he’ll still accept payment in Liberty Dollars for meals at the hot dog joint he owns in Mount Morris, Mich.
“Several questions remain unanswered by the Secret Service,” the Coin World article goes on. Such as are Liberty Dollars legal to own, sell or distribute? And “Will federal law enforcement authorities seek to seize any of the tens of thousands of Liberty Dollars still in private hands?”
And, we might add, whether Mr. Gillie and others like him might be prosecuted on charges of aiding and abetting a terrorist plot. Sheesh…
“Wait a minute!” a reader implores. “You calculated yesterday that food stamp benefits totaled $77 billion. But I also read elsewhere that the program cost over $100 billion for the year.
“Does that mean that the bureaucratic cost for distributing those benefits was nearly 25% of the total cost? That would be almost 33% added to the actual cost of the benefits distributed. But under Obamacare, insurance companies are required to spend at least 85% (or is it 80%?) of premiums on actual health care. Is this a prime example of hypocrisy … not to mention the bloated waste!”
“When I was in the service and stationed in Germany from 1984-87,” a reader writes on the penny/nickel issue, “all items on base at the PX, commissary, or class VI store were priced to a penny. When the merchandise was totaled up, the amount was rounded off to the nearest nickel.
“Even the American Express bank would round up or down our paychecks when cashing them. Only the US Post Office on base still used pennies, and spent a small fortune shipping them in from the States.”
The 5: Interesting. While the days of the penny and nickel might not be numbered — yet — the Mint remains up to something interesting. Come Friday, it could also prove quite profitable.
The 5 Min. Forecast
P.S. Final reminder: If you want access to recordings of the Rancho Santana Sessions — either HD video to watch on your computer or audio files for on-the-go convenience — you have until midnight tonight to order. Here’s where to go.